The backwards music business 1

According to a story in today’s Financial Times, music companies are upset because, get this, customers are flocking to buy legal digital downloads.

For several years, the record companies have complained about unauthorized peer-to-peer file sharing. Now, they are finally generating significant revenues from users paying to receive their songs over the Net. And the labels’ response is to complain that prices must be set too low. There were other, higher-priced digital download services around before Apple made 99 cents the standard price on iTunes, and they failed to catch on. That seems to suggest the current prices are in the sweet spot of the market, stimulating demand and luring users away from P2P downloads. The record companies seem to think otherwise.

In most businesses, news that customers are buying your products in droves would be met with jubilation. But in an industry used to controlling distribution chains and prices through rigid oligopolistic practices, that scenario is met with fear. Of course, if prices for legal digital downloads go up, illegal digital downloads start to look more attractive again. The labels may be about to cut off their noses to spite their faces.

One comment on “The backwards music business

  1. Feb 28,2005 1:01 pm

    Are they out of their tiny minds? What if halving the price for any song over 12 months old resulted in 10 or 100 times as many sales? What if cutting the price to $0.25 resulted in 1000 times the sales? Both of those scenarios are extremely plausible. Look at Big Champagne’s stats for P2P downloads and the overall market is at least 1000 times bigger than iTMS.

    My own belief (based on personal use of AllOfMp3) is that somewhere around $0.25 you stop thinking about the price at all, at all and simply down load as fast as you can think of things to search for.

    I’m not suggesting that first run music should be this price, but the labels have a vast back catalogue including many things that are simply unavailable on physical CD. They should be digitising every bit of audio they’ve got as fast as possible and putting it all online at the above prices. Internet download sales are the first opportunity they’ve had to really monetize this stuff. And right now it’s just gathering dust. There’s such a huge opportunity here, and all they seem to be able to see is their perceived need to protect sales of the next Nelly single. Short-termism at its worst.

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